Startup valuations back at 2020-21 levels, says Sanjeev Bikhchandani

In 2022, the average cheque size offered in our second fund was roughly 20 per cent lower than that in 2019-21 but with a 20% higher shareholding in companies, said Info Edge founder Bikhchandani

With investments in over 130 companies, which include big successes like Zomato and Policy Bazaar, Info Edge founder Sanjeev Bikhchandani and partners in the venture business Kitty Agarwal & Chinmaya Sharma unveil their plans to Surajeet Das Gupta. Edited excerpts:

 

Is the squeeze in funds by investors during the pandemic now changing?

 

Sanjeev: In 2022, the average cheque size offered in our second fund was roughly 20 per cent lower than that in 2019-21 but with a 20 per cent higher shareholding in companies. But in 2024 and 2025, early-stage valuations are back to 2020-21 levels. So, pre-money valuation for startups in the pre-launch stage, which were at $5-7 million, are now back at $10-12 million. Average size of the cheque for pre-launch investment, which was at $1-1.5 million, is now back at $1.5-2 million.

 

So, is the market again getting its frenzy on valuations?

 

Kitty: Many venture capital (VC) funds have fresh pools of capital and dry powder, and the best companies and the best founders have again started getting multiple term sheets for investment. Our average term sheet closure is now around three-to-four weeks, some of them are in a week. In 2022-23, we were taking one-to-two months to do so.

 

Is it a good time or a not-so-good time for VC funds?

 

Sanjeev: If you are on the buy side, it is not so good. But if you are on the sell side, it is good. If you are already invested in a company and the market is booming, the next round will be at a higher valuation. On the other hand, if you are entering a company for the first time, you are paying a higher price.

 

So, what is your investment strategy?

 

Chinmaya: We like to put the first institutional cheque into the company, sometimes it may be the second. We do not usually enter a company in the third or fourth round as the cheque sizes and valuations are very high. However, we do invest in companies where we are already there — in follow-on funds raised till Series B or C. And, up to 15 per cent of our fund is kept as allocation for late-stage fundraises in new companies that we may have missed in the earlier stages. 

 

How do you allocate funds across companies, and what is the kind of equity that you are comfortable with?

 

Sanjeev: Our stakes are generally around 15-25 per cent in companies. In our earlier strategy, when we were investing through the balance sheet of Info Edge, we had over 57 per cent in Zomato, but that has now changed. At one point, we had invested over ₹480 crore in Zomato, of the total invested corpus of ₹800 crore. The board asked us what we were doing. While in hindsight it worked for us, from a portfolio perspective, it was foolish. We are less likely to do that now. We now have our own guardrail, which is not to invest more than 10 per cent of our fund in any one company. So, we have evolved into a more formal, rule-based investing fund, which reduces risk somewhat.

 

You have a large investment from one private equity (PE) investor, Temasek, in both the funds. So, what do you bring to the table for them?

 

Sanjeev: One, they do not invest in early-stage companies, so through this route, they are invested in that space. Two, we both think alike on the long-term potential of India, and have a high degree of congruence of values on governance issues. And, in some of our companies, which raised follow-on funds, Temasek came in directly as it saw the company going bigger, and also we independently did not have the size to do so.

 

But are you not too over-dependent on just Temasek as an outside funder for your VC funds?

 

Chinmaya: Our belief is that we are in the investing business and not in the business of raising funds. Our fund is in that way unique as we don’t have 20-30 LPs (limited partners) each of whom has to be serviced. We want our team to concentrate on investing. In the third fund, we have raised ₹1,000 crore only from Info Edge. We are in conversation with a few LPs to invest in the fund.

 

How have you performed on the exit front?

 

Sanjeev: If there is one criticism, it is that we do not know how to exit and that might be valid. By nature we are optimists and think the future will be better than the past — so, the longer you stay invested, hopefully the more value you realise and it has worked. But we have to learn to exit as there is an external LP like Temasek, which will want an exit route as it is a financial investor.